2011 (8) TMI 147 - HC - Income Tax

Capital or revenue receipt - The facts brought on record before the ITAT and before this Court by filing an additional affidavit clearly show that the property belonging to the assessee was damaged by Sahara India and in fact after paying compensation, neither Sahara India nor the Municipal Council have restored the land belonging to the assessee to its original position - The fact that the land has remained with the assessee and that the assessee in future may earn profits from the said land cannot be a ground to hold that the compensation received by the assessee in lieu of damage caused to the land was revenue receipt - Decided in favor of the assessee

Summary

Issues:
1. Taxability of compensation received for damage to land as a revenue receipt in AY 2004-05.

Analysis:
The case involved a dispute over the taxability of compensation received by the assessee for damage caused to their land during the construction of an over-bridge by Sahara India. The assessee filed a Civil Suit and obtained compensation of Rs. 8,42,000 for the land damage and Rs. 5,58,000 for granting the right of way. The ITAT held that the amount received for granting the right of way was a capital receipt and not taxable. However, regarding the compensation for land damage, the ITAT considered the possibility of the assessee utilizing the land for future income and deemed it a revenue receipt.

The High Court analyzed the facts presented and noted that the land remained damaged even after the compensation was paid, with no restoration to its original state by Sahara India. The Court emphasized that the mere presence of the land with the assessee and the potential for future profits did not automatically classify the compensation as a revenue receipt. The Court concluded that the amount of Rs. 8,42,000 received for the land damage could not be considered a revenue receipt, ruling in favor of the assessee and against the revenue authority.

In light of the above analysis, the High Court admitted the case based on the question of law regarding the taxability of the compensation received for land damage. The Court's decision clarified that the compensation for damage caused to the land was not a revenue receipt, thereby disposing of the appeal in favor of the assessee with no order as to costs.